Rural and agriculture sector outlook - UHY Hacker Young · Rural and agriculture sector outlook ......

2015/16 fiscal year

Helping you prosper

Rural and agriculture sector outlook

We understand that rural and agricultural enterprises are unlike other commercial enterprises, and that you have unique practices and conventions. Our approach to each client is tailored to recognise your individual circumstances. This is why we always build up an in-depth knowledge of your business, to ensure we can shape our services accordingly and add value wherever possible.

Our national rural and agriculture team has a genuine knowledge of the sector and the relevant experience to help. We have a thorough understanding of the business structures under which rural and agriculture businesses operate, whether that is company, partnership, sole trader or a trust structure. We understand the practicalities of farming and are at home speaking with, advising and acting for our clients, tailoring our approach to meet individual circumstances.

We act for a range of landed estates, farming, horticultural and rural businesses, advising them on the many issues affecting their businesses whether it is trusts, VAT, mixed farming, diversification, treatment of expenditure on farm and other commercial buildings, rental portfolios or the use of companies.

This booklet provides our perspective, as accountants, on some of the issues facing the rural and agriculture sector for the 2015/16 fiscal year.

As well as some thoughts from our sector experts we have a guest sector contribution from Giles Hanglin, of Savills Energy. Giles gives his perspective on powering up the agriculture sector with renewable energy.

For further information, or to arrange a meeting to discuss your specific requirements, please contact one of our rural and agriculture specialists named inside or read more about us on our website at www.uhy-uk.com/rural-and-agriculture.

Our national rural and agriculture team has a genuine knowledge of the sector and the relevant experience to help.

www.uhy-uk.com/rural-and-agriculture

CONTENTS

Editor’s View of the year ahead, Tim Maris 2

Guest feature - powering up the agriculture sector, Giles Hanglin 3

Timing is everything!, Brian Carey 4

A guide to the maze of bookkeeping software, Natasha Root 5

Diversification - beware of the pitfalls!, Amanda Millet t 7

How your farmhouse can qualify for IHT relief, Charles Homan 8

The importance of your business structure, Margot Madin 9

FRS 102 is now here - how will it affect you?, Amanda Millett 10

Horse liveries and BPR, Charles Homan 10

OUR RURAL AND AGRICULTURE SERVICES

• Technical and taxation

• Raising finance

• Change in business structure

• Property transactions

• Passing on the family farm

• Business management

• Cash flow planning

1

I thought 2014 was going to be an interesting year but it looks like 2015 may top it, and not necessarily for the better.

The end of 2014 saw the price of our commodities continue on their downward trend with no particular respite in sight, with the dairy sector being hardest hit. The low value attributed to what is grown and produced on our farms looks set to continue through 2015 and into 2016, not a pleasant prospect especially when we consider how slowly the input prices have fallen. One can only hope that the fall in oil based inputs will seep through into the accounts sooner rather than later and will stay for longer. Not all is lost, there is some hope that costs will decrease with inflation, now at 1%, and are likely to remain below the Government’s target of 2% for the foreseeable future.

The new Basic Payment System (BPS) is proving a little troublesome to set up and I dare say there will be delays in farmers obtaining access. So, fingers crossed it does not delay the payments due in December 2015.

I expect cashflow is going to be tight throughout the year, the drop in incomes mentioned above will be particularly painful when the rent cheque or the tax payments are payable. If this coincides with payments for the investment in plant and machinery, careful cashflow management will be vital. Hopefully the investment in plant and machinery was efficiency driven and there

will be annual benefits to the business’ bottom line as well as the tax incentives of claiming the Annual Investment Allowance (AIA). The AIA changes again on 31 December 2015 and as per the Budget will be subject to a further announcement. In the meantime see our follow up article by Brian on how the timing of expenditure can dramatically affect your entitlement to this allowance.

Business structure and succession planning were hot topics in 2014 and I think this will continue as more pressure is placed on businesses to consider the best structure for future profitability and development. We look at this area with an article by Margot (p9) and follow this up with some of the issues to consider when planning new ventures and diversification on the farm, as you will see in Amanda’s article (p7) on Diversification - beware of the pitfalls.

There is plenty to think about as we go through 2015. There are always opportunities that arise from reviewing what you are doing and why you are doing it. Talk to your professional advisers, accountants, consultants; organise that pre year end meeting. Planning and implementing even small changes can have a big effect on the future and often turn out for the better. Attention to detail and the involvement of all the management team in the business plans for the future of the business will make all the difference.

We wish you all the best for the coming 12 months and hopefully our insights will be of interest to you. If we can be of any assistance, please do not hesitate to contact us. We very much look forward to hearing from you.

Tim MarisDirectorRoyston, Cambridge and East Anglia e: [email protected]

Planning and implementing even small changes can have a big effect on the future.

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RURAL AND AGRICULTURE

EDITOR’S VIEW OF THE YEAR AHEAD

mailto:[email protected]

Looking forward, the country is taking coal-fired generators offline over the coming years, with some predictions suggesting that this will take national generation capacity below the minimum strategic requirement. While many businesses have installed back-up generating schemes over the past few years, many more have not. Managed correctly, these factors come together to provide opportunities for land and property owners.

With all of those factors in mind, the potential benefits of solar for the British economy are phenomenal and the UK is currently at the forefront of innovation when it comes to establishing the most appropriate solutions for solar installations.

The Solar Trade Association (STA) has suggested that home-grown UK solar will be cheaper than gas by 2018; and cheaper than wholesale electricity prices by 2028. The Centre for Economics and Business Research thinks this parity with wholesale electricity could come even earlier, perhaps in 2024.

The STA research into large-scale solar installations, of 10MW and above, also shows that a growing supply chain in the UK and falling global component costs will substantially bring down the total required investment for farm-scale solar over the next 15 years.

Of course, for all of this to happen, it is essential that government policy is consistent and that landowners and business managers are able to access all of the facts to make a decision about whether solar is right for them. The latest Savills Estate Benchmarking Survey showed that 70% of landowners had assessed the renewable energy potential of their estate recently, with another 12% planning to do so within a 12 month period. However, many identified grid capacity, planning requirements and energy storage as key barriers to progress.

Agricultural and commercial organisations continue to be driven by the need to drive out cost from the supply chain and one of the key areas to do so is around energy. For many circumstances, the pay-back for solar, regardless of the current FiTs environment, is just too great to ignore. With a return on investment of as much as 15% on a commercial rooftop for both the owner and tenant, if applicable, the opportunity to ‘green-up’ the portfolio while addressing the challenges of energy costs and energy efficiency is substantial.

Of course, solar is not right for everyone and it is important that landlords engage with experienced advisers who can identify, develop and commercialise energy generation opportunities to achieve valuable commercial benefits. Many commercial buildings have already been transformed to deliver future energy needs and we expect this trend to continue over the coming decade, especially with the government’s 2020 targets in sight.

Giles Hanglin Director of Agribusiness Cambridge Savills e: [email protected]

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GUEST FEATURE - POWERING UP THE AGRICULTURE SECTORAs the International Energy Agency (IEA) announces that solar power could replace coal as the world’s primary electricity source by 2050, it is crucial to understand how the countryside land and business economy will need to develop to make this prediction a reality.

Giles Hanglin, director at Savills Energy, explains the steps which will need to be taken by agriculture and rural commercial businesses to make the most of the solar opportunity now, as well as suggesting the role government will need to play in commercial roll-out success.

It is clear that solar power has become a topic of contention for the government in the run-up to the General Election in May 2015. Indeed, the CLA itself has recently come out in response to assertions from Secretary of State for the environment, Elizabeth Truss, that solar farms are “a blight on the countryside.”

Responding to the attack on ground mounted solar, the CLA, alongside the NFU and the Farm Power Coalition, has argued that agricultural activity can co-exist alongside solar farms in order to produce food and energy from the same hectares. The Farm Power Coalition argues there is a potential untapped 20GW of solar energy within the agricultural sector.

Indeed, while the UK government cannot actually put a figure on the amount of land allegedly lost to renewables, the CLA is working with its partners throughout the country to outline how much is gained from co-locating solar panels alongside livestock grazing, biodiversity projects and crop pollination.

Renewable energy has the potential to fundamentally transform the profitability of business in the rural sector. Historically, many landowners strengthened their business by spreading risk and developing multi-faceted income streams; renewable energy can be viewed in the same way.

The benefits of embracing renewable technologies include the diversification of a land owner’s portfolio, generation of an additional source of income, the value of sustainability when securing contracts to supply to retailers, as well as hedging against future rises in energy prices. After all, rising prices, dramatic weather and supply and demand fluctuations are all adding to volatility in profits for countryside businesses.

The potential benefits of solar for the British economy are phenomenal and the UK is currently at the forefront of innovation.


In our 2014/15 Sector Outlook we looked at the extension to the AIA, for the period 1 or 6 April 2014* and 31 December 2015, to £500,000 of capital expenditure that could potentially qualify for 100% relief in the year of expenditure. We also explained the situations where entitlement to the allowance could be denied if, for example, you are a partnership with a corporate partner.

As we are approaching the period in which the £500,000 limit is ending, you should begin to base your planning on the AIA reducing to £25,000 from 1 January 2016. For example, if you are a business which qualifies for the AIA and you also straddle the 31 December 2015 period, you will need to carefully review your capital expenditure programme to ensure a maximum claim is available.

If we take a company with a 31 March year end, this change in the AIA will bite in the accounting period ended 31 March 2016.

As a result of the huge reduction in the value of the AIA, as from 1 January 2016, businesses will need to plan their expenditure accordingly. For our March client, in the year to 31 March 2016, they would be able to claim total AIA of £381,250, as calculated in the diagram below.

To 31 March 2015

12 months @ £500k £500,000

£500,000

To 31 March 2016

9 months @ £500k £375,000 3 months @ £25k £6,250

£381,250

To 31 March 2017

12 months @ £25k £25,000

£25,000

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Potential pitfall - lead time

One of the potential pitfalls to look out for is expenditure timing. For example, if you identify qualifying expenditure of £380,000, depending on the period in which you incur that expenditure, the difference in relief could be thousands. If you incur the expenditure in the period to 31 December 2015, then you will qualify for full relief on the total £380,000. If the expenditure is incurred in the period between 1 January 2016 and 31 March 2016, the maximum you will qualify for is £6,250. This difference in timing could cost you relief in the year of £306,475 which at a tax rate of 20% is £61,295 in cash terms.

The timing of when you incur expenditure could cost you thousands. For timing, the general rule is that the expenditure is incurred when there is an unconditional obligation to pay. This may or may not coincide with the invoice or delivery date. As shown above, timing can be crucial to the limits in force.

Where assets are taken on hire purchase or similar, unless they have been brought into use, allowances can only be claimed up to the amount of the capital actually paid off the HP agreement.

You need to ensure that you factor in lead times to your larger acquisitions, as ordering is not necessarily sufficient to crystallise the capital allowance claim. The legislation states that to qualify as expenditure, the expenditure must be incurred and the asset must be owned by the ‘person’ at some time in the chargeable period.

You may need to consider entering into contracts whereby you are obliged to make more than just a normal deposit to secure the asset. For combine harvesters bought during March year ends, this can be a real issue.

If you would like to discuss how our team could assist you, or for further advice on any other aspect of farming business planning, please speak to your usual UHY adviser or find details of your local office at the back of the Outlook.

Brian Carey Partner Kent and South East e: [email protected]

*1 April for companies or 6 April for unincorporated businesses

1 April 2014

31 March 2017

31 March 2015

1 April 2015

31 March 2016

1 April 2016

1 January 2016 new rate introduced


TIMING IS EVERYTHING!

AN EXAMPLE OF THE POTENTIAL TAX BENEFITS


SAGE

Sage has often been criticised for being software designed by accountants for accountants, however, over recent years it has developed into a much more user friendly programme. It is now widely recognised and if you use a bookkeeper you will have no trouble finding one that has experience of Sage.

Good for:

• Smaller businesses with one of two streams of income.

• Great telephone support and an extensive bank of online resources.

• Sage is well-known in the marketplace and so you will never be short of people that can provide advice.

Downsides:

• Requires some training if you have not used a bookkeeping programme before.

• Not designed with agricultural businesses in mind.

Cost:

Sage Instant is available from £135. Sage also offer a payroll programme and a cloud based version, SageOne, of the software.

Our rating:

Ease of use 6/10

Reporting 7/10

Price 9/10

Overall rating 22/30

5

A GUIDE TO THE MAZE OF BOOKKEEPING SOFTWARE


There are many brands of bookkeeping software and choosing one for your business can be difficult. We understand that no two businesses are the same and we can help you find the best bookkeeping software for you. This guide looks at some of the most commonly used bookkeeping software and how each programme can benefit you.

A good piece of software does not have to cost the earth and if used correctly can be invaluable to your business. The ability to run financial reports at the click of a button will enable you to make more informed decisions, control your costs and keep an eye on your margins. Tidy business records often result in cheaper accountancy fees too!

KEY ACCOUNTS

KEY32 has recently had a revamp and is to be replaced by KEYPrime.

Good for:

• Businesses with multiple properties. If you have multiple properties to manage you would benefit from KEYPrime Property. This can be integrated with KEYPrime or used as a stand-alone product.

• Larger farms and estates with multiple enterprises. Through KEYPrime you can now link to the Farmade Gatekeeper programme for crop records.

• Group training sessions. Sessions are run across the country, providing an opportunity to keep up-to-date with new programme features and offering support for any questions you may have.

Downsides:

• More appropriate for larger farms and estates rather than smaller businesses.

• Not as widely known as other programmes.

More comprehensive than some of the alternatives, which is great if you would like plenty of detail but can be complicated if you want an easy life when it comes to your bookkeeping!

Cost:

Cost varies dependant on the size of business and the software currently in place. This industry specific software will be more costly than a standard package.

Our rating:

Ease of use 7/10

Reporting 8/10

Price 6/10


A good piece of software does not have to cost the earth and if used correctly can be invaluable to your business.

6

FARMPLAN

As the name suggests Farmplan is designed with the agricultural industry in mind and, as a result, has many features that other programmes may lack.

Good for:

• The enterprise and search code features make this software great for businesses with multiple streams of income. Detailed reporting enables you to see how each element of your business is performing.

• You can allocate costs to individual items of machinery or property, which will keep track of how much each item is costing you to run and maintain.

• Excellent additional packages, such as Gatekeeper crop management and Earnie payroll, mean that you can keep tabs on all aspects of your business.

Downsides:

• Expensive in comparison to other software. If you are not going to use the majority of its features then we suggest considering a cheaper alternative.

•Not all accountants will have knowledge of this software, so make sure you have a specialist accountant who is familiar with Farmplan.

Cost:

Prices start from £375 for Cash Manager, although most farming business use invoiced based VAT which will require Business Manager priced from £1,045.

Our rating:

Ease of use 8/10

Reporting 9/10

Price 6/10


XERO

Xero is a cloud based programme that was developed in New Zealand where it is the software of choice for farmers.

Good for:

• Instant access via the internet or Xero app whenever, wherever. You can also let your accountant have access so that they can monitor your financial data throughout the year.

• Live bank feeds mean you will no longer have to enter all those bank receipts and payments, as it is automatically done for you!

• A significant variety of add-on options are available, including Farmflo, which means you can manage every aspect of your business.

Downsides:

• Requires an internet connection, so will not be appropriate if you struggle to maintain a reliable connection within your area.

• Cloud based software is still a fairly new concept and can take some getting used to.

• Reporting features are not as detailed as other industry specific programmes.

Cost:

Prices between £9 - £25 per month.

Our rating:

Ease of use 9/10

Reporting 7/10

Price 8/10



IN SUMMARY

Most software companies offer a free trial, so if you like the sound of any of the programmes we have reviewed why not give them a go! We are on hand to help you get started and can provide extensive training, if required. For further information, please speak to your usual UHY adviser or find details of your local office at the back of the Outlook.

(Prices quoted exclude VAT)

Natasha Root Portfolio Manager Letchworth and East Anglia e: [email protected]

Most software companies offer a free trial, so if you like the sound of any of the programmes we have reviewed why not give them a go!


7. Farm becomes partially exempt for VAT purposes. Setting up a non-farming venture can have unwelcome VAT implications. If the source of income is VAT exempt, such as rental income, this could have an impact on VAT recovery and you will need to refer to the partial exemption rules. This could mean less VAT being reclaimed on certain types of expenditure.

8. VAT planning opportunities are missed. It may be that the new enterprise can be established as a separate business entity so that it has its own VAT registration threshold. This would mean that taxable supplies would be outside the VAT net until the new enterprise had become established enough to register in its own right.

9. Valuable CGT reliefs available to new businesses are overlooked. New ventures could qualify for the Enterprise Investment Scheme (EIS) or Seed EIS which offer significant CGT reliefs and can thereby assist in the diversification process.

10. Opportunities to change the business structure are overlooked. Combining a new venture with an existing successful farming business could lead to higher income tax rates being applied. You may wish to consider running the new venture as a separate business, particularly if there are family members who are not using their personal allowances or basic rate tax bands. A company structure can be advantageous – potentially giving more flexibility when profits are drawn and lower rates of tax, as well as offering protection to the existing business against risk from business failure if things go wrong.

Diversification can be an incredibly important means of boosting income and business value and, with the appropriate planning, skills and advice, can be hugely beneficial to landowners and rural businesses.

If you have any concerns regarding the tax implications of diversification, please speak to your usual UHY adviser or find details of your local office at the back of the Outlook.

Amanda Millett Partner York and Yorkshire e: [email protected]

Diversification is an attractive opportunity to increase income, but landowners and rural businesses need to be aware of the tax differences between farming and alternative uses of land that may arise as a result of diversification. Farming attracts unique tax reliefs and rules, and it is essential when moving to alternative uses of land that all the main tax reliefs available to farming businesses continue to be used to maximum benefit. There are a number of pitfalls associated with diversification which we have outlined below.

1. Inheritance Tax (IHT) reliefs are put at risk. If the land around the farmhouse is put to non-agricultural use this may remove the house and associated land from exemption from IHT.

2. Capital Gains Tax (CGT) reliefs are put at risk. With the move to diversification, the main CGT reliefs available to the farming business may be lost. It is important to preserve the potential availability of roll-over relief, hold-over relief and Entrepreneurs’ Relief.

3. Accounting records are no longer suitable. A lack of distinction between expenses from different activities (farming and non-farming) can lead to confusion over which expenses are claimable against tax for each business. Where possible and practicable there should be a separation of expenses and they should be allocated appropriately.

4. Loss relief claims are not secured. Full relief may not be claimed for losses arising in the new venture, particularly in the early years. It is important to ensure that the maximum amount of tax relief is claimed on any losses incurred and all available tax allowances are claimed.

5. Loss of farmers’ averaging. Farmers may, if eligible, elect to average their profits for tax purposes. This benefit may be lost in the course of diversification. It is important to keep non-farming profits separate in order to avoid losing some of the benefit from the farmers’ averaging rule.

6. Loss of job-related accommodation. There is a risk that workers undertaking non-farming duties could lose the tax-free status of job-related accommodation available to farm workers.

Diversification can be an incredibly important means of boosting income and business value.


DIVERSIFICATION - BEWARE OF THE PITFALLS!

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The cottage or farmhouse must be occupied by someone employed in farming, a retired farm employee or the spouse or civil partner of a deceased farm employee. They must occupy the property as a tenant under a lease granted as part of their former employment contract or a protected tenant with statutory rights.

In the past, we have seen HMRC challenge claims when, for example, an older farmer retires, but still remains in the farmhouse. HMRC are prepared to challenge any claim for APR on the grounds that the farmhouse has now become a ‘home for retirement’.

HMRC defines the farmhouse as a dwelling for the farmer from which the farm is managed. The farm management and operations must be conducted at the property for it to be a farmhouse. Be careful, if part of the farming operation is run from a farm office or the managing agents’ office, it may impact on the availability of APR to you.

It is critical that you consider the current ownership and occupation of your farmhouse along with any associated cottage(s) and land. You need to consider the occupation structure under the current APR legislation. Look carefully to ensure occupation is tied to the agricultural activity, and that you have retained sufficient evidence to defend this position should it be challenged when you make the claim for APR. With careful planning we may be able to improve your IHT position prior to a chargeable event occurring. A chargeable event for IHT could be death or a gift to a trust which could give rise to a tax liability where APR would be claimed.

Hope or development value and the value of sporting rights will not be covered by APR. This is where you need to consider Business Property Relief (BPR) to assist with planning. BPR can give 100% relief (businesses, interests in businesses, shares in unquoted companies) or 50% relief (land, buildings, and plant owned by the person making the transfer and used by a company/business/partnership under their control), depending on your specific circumstances.


Charles Homan Partner Brighton and East Sussex e: [email protected]

If like many farmers you own your farmhouse as part of your business, you need to understand if it qualifies for Agricultural Property Relief (APR). APR has a huge advantage in that Inheritance Tax (IHT) can be extended to include your farmhouse as well as the land you use for agricultural activities. You then have the benefit to choose whether to pass on your agricultural property, free of IHT, either during your lifetime or as part of your Will.

To qualify for APR, agricultural property is defined as land or pasture which is used to grow crops, or to rear animals intensively. It also includes:

• stud farms for breeding and rearing horses and grazing;

• trees that are planted and harvested at least every ten years (short-rotation coppice);

• land not currently being farmed under the Habitat Scheme;

• land not currently being farmed under a crop rotation scheme;

• the value of milk quota associated with the land;

•some agricultural shares and securities; and

• farm buildings, farm cottages and farmhouses.

The value then, including the permitted area qualifying for APR, is based on the value as if it could only be used for agricultural purposes. The permitted area incorporates the garden and buildings within the grounds, so long as they are required for the reasonable enjoyment of the dwelling house. The value then, including the permitted area that will qualify for APR, is based on the value as if it could only be used for agricultural purposes. The value of the farmhouse over and above the agricultural value, such as the open market price of an attractive country residence, does not qualify for APR.

You need to note that derelict buildings and property, subject to a binding contract for sale will not qualify for APR, so you need to consider these buildings carefully. We can help you to plan how they should be used commercially on your farm or estate to achieve the best out of the valuable reliefs which are available to you.

HOW YOUR FARMHOUSE CAN QUALIFY FOR IHT RELIEF

APR has a huge advantage in that IHT can be extended to include your farmhouse as well as the land you use for agricultural activities.


Planning for your future

We act for many rural-based businesses, farms, landed estates, horticultural and equestrian enterprises and we see that, for some, diversification is part of their survival or growth plan. If you are planning to expand or diversify, you should consider your current structure and whether now is the time to convert or to set up a new company or LLP.

Your future plans play an important part in deciding on the best structure for your business. If you do not have family to take over in future, you may be planning to sell the business to a third party, and the amount of CGT you pay will depend upon your ownership of the assets and the business structure you have operated through.

Trusts

Tax matters can become much more complicated if you own land or property, some of which may be rented out, and you should consider whether a separate business structure or a trust might be a good idea in your case. This may protect assets from leaving the family, in the event of disputes, divorce or death.

Rental income

On farms and estates, it is quite common to rent out land to other farmers, land-users, equestrian and horticultural businesses, and to run caravan sites and holiday homes. We would recommend that you consider alternative business structures, to minimise the effect of capital taxes in the future. If you have surplus land or property, and wish to rent it out, take our advice first.

Renewable energy

We are still hearing of clients who are being approached to have wind turbines or solar/PV panels in their fields, on a rental basis. We recommend that you talk to us before you go ahead, as this can have a significant effect on your CGT and Inheritance Tax in the future, as well as on your taxable profits, and on who benefits from the Feed-in Tariff incentives available. We can help you to tweak the arrangement to your advantage, which may involve a separate business structure, or may be contained within the existing business.

If you would like to discuss your business structure and the options available to you, please speak to your usual UHY adviser or find details of your local office at the back of the Outlook.

Margot Madin Partner Nottingham and East Midlands e: [email protected]

Whether your farming business or other rural-based enterprise is long-standing or was set up fairly recently, we would suggest that you consider how it is structured because there are advantages and disadvantages with each different structure. Depending on you and your future plans for your business it is important to review your current structure from time to time with your UHY adviser.

Partnership, company or LLP?

Many farms are run by several generations of the same family, and are traditional family partnerships, albeit that some assets such as land and properties may have been put into trusts, to protect them and prevent them from leaving the family in the event of untimely death or divorce.

Some farming businesses and many other rural enterprises are run through limited companies which allow them to take advantage of the tax breaks that are available.

Other farming businesses are split so that certain parts of the business are run through a limited company, whilst the family are still in a partnership. A few are also run through Limited Liability Partnerships (LLPs), a hybrid structure, which enables individuals and companies to share in the profits of a business to some tax advantage. However, these are now coming under attack from HMRC.

There are a number of differences between the structures and each option should be considered carefully. An LLP is similar to a partnership, but brief accounts (essentially the balance sheet and brief notes) have to be filed at Companies House. On the plus side, members of an LLP are protected from liability when the business runs into debt or litigation and, therefore, this reduced risk can be attractive.

As a member of an LLP, you still have to pay Class 4 National Insurance (NI), on top of the tax, on your profits, whereas if you are the director and owner of a limited company, you can significantly reduce or eliminate your liability to pay NI.

In order to decide on the best structure for you, you should seek advice from your UHY adviser, as your personal circumstances and future plans will be very relevant in making this decision.

9

THE IMPORTANCE OF YOUR BUSINESS STRUCTURE

There are a number of differences between structures and each option should be considered carefully.



10

The Financial Reporting framework has changed with Financial Reporting Standard 102 (FRS 102) and although it is only mandatory for corporate businesses, if you are an unincorporated entity, it will change the way you prepare your accounts.

The new accounting standards have been in effect for accounting periods which commenced on or after 1 January 2015. As an unincorporated entity FRS 102 will replace the current UK Generally Accepted Accounting Practice (GAAP).

Though there are many changes afoot which apply to all types of entity, FRS 102 includes a section on agriculture; the first time that this has been specifically addressed within UK GAAP.

The new standard provides two options for valuing each class of biological asset, such as animals or crops in ground. These assets can be valued in the business balance sheet at either the lower of cost or net

realisable value, or at fair value less costs to sell at the year end. Once the fair value method has been adopted by an entity it cannot be subsequently changed. For corporate entities there are various disclosure requirements under either option within the company’s accounts.

So what does this mean for your business?

• Clear record keeping will be essential in order to fully comply with the accounting and, where relevant, disclosure requirements as a result of these changes.

• Thought needs to be given to the best basis of valuation for your business once the first set of accounts under these standards is prepared. A change in valuation basis can affect both your balance sheet and your accounting profits which may or may not be favourable depending on your objectives. Your usual UHY adviser will be able to determine the best option for you.

If you have any concerns regarding FRS 102, please speak to your usual UHY adviser or find details of your local office at the back of the Outlook.

Amanda Millett Partner York and Yorkshire e: [email protected]

FRS 102 IS NOW HERE - HOW WILL IT AFFECT YOU?

If you own a livery business and grant horse owners license to occupy land as a do-it-yourself (DIY) livery, do not take it for granted that the business will qualify for Business Property Relief (BPR).

BPR should be available as long as you provide services in addition to the letting of land and buildings. However, HMRC have been trying to deny BPR on the trade of horse liveries where horse owners are granted licenses to occupy land as a DIY livery.

If you own a livery where an element of care is provided, for example, feeding, mucking out, putting out to graze etc., then trading status will apply to your business and BPR can be claimed. If your stables are rented out for DIY livery purposes, then your business operation is not trading income and so not eligible for BPR.

To ensure you qualify for BPR you will need to demonstrate that your business was carried out with a view to a profit and that it was conducted in a regular manner on sound commercial and recognisable business principles. It is vital that you maintain good accounting records to demonstrate your trading activity in order to give you the best possible chance of a successful claim for

BPR. This will then enable you to reduce the amount of Inheritance Tax (IHT) payable on death or on lifetime gifts to trusts.

We can work with you to recommend a number of options to strengthen your case. For example, grazing agreements can be beneficial here, but if they are not carefully drafted, clarifying the services that are included and provided by your livery business including responsibility for fertilising the grass, maintaining the fences and hedges, emergency feeding and vet cover, security, provision of feedstuff and hay and general care, they may indicate investment rather than trading activity. The appropriate insurance policy will also assist with your evidence.

We recommend that you start to collate and retain your evidence now as, after death, the best witness, you the business owner, will be dead. A strong trading case for your livery business will also assist with any sideways loss relief claims for income tax purposes.


Charles Homan Partner Brighton and East Sussex e: [email protected]

HORSE LIVERIES AND BPR




Helping you prosper


UHY Hacker Young Associates is a UK company which is the organising body of the UHY Hacker Young Group, a group of independent UK accounting and consultancy firms. Any services described herein are provided by the member firms and not by UHY Hacker Young Associates Limited. Each of the member firms is a separate and independent firm, a list of which is available on our website. Neither UHY Hacker Young Associates Limited nor any of its member firms has any liability for services provided by other members.

A member of UHY International, a network of independent accounting and consulting firms.

This publication is intended for general guidance only.

No responsibility is accepted for loss occasioned to any person acting or refraining from actions as a result of any material in this publication.

© UHY Hacker Young 2015

www.uhy-uk.com

UHY Hacker Young Group offices:EnglandLondon UHY Hacker YoungPhone 020 7216 4600Email [email protected] UHY Hacker YoungPhone 0121 233 4799 Email [email protected] & Hove UHY Hacker YoungPhone 01273 726 445Email [email protected] UHY Hacker YoungPhone 01454 629 636 Email [email protected] UHY Hacker YoungPhone 01223 352 823Email [email protected] UHY Hacker YoungPhone 01244 320 532Email [email protected] UHY TorgersensPhone 0191 428 0001Email [email protected] UHY Hacker YoungPhone 01462 687 333Email [email protected] UHY Hacker YoungPhone 0161 236 6936Email [email protected] UHY TorgersensPhone 0191 230 8100Email [email protected] UHY Hacker YoungPhone 0115 959 0900Email [email protected] UHY Hacker YoungPhone 01763 247 321Email [email protected] UHY Hacker YoungPhone 0114 262 9280Email [email protected] UHY Hacker YoungPhone 01795 475 363Email [email protected] UHY TorgersensPhone 0191 567 8611Email [email protected] UHY Hacker YoungPhone 01273 726 445Email [email protected] UHY Calvert SmithPhone 01904 557 570Email [email protected] Campbell DallasAberdeenPhone 01224 623 111Email [email protected] 0141 886 6644Email [email protected] 01738 441 888Email [email protected] 01786 460 030Email [email protected] UHY Hacker YoungPhone 01873 852 124Email [email protected] UHY Hacker YoungPhone 01633 213 318Email [email protected] UHY Hacker YoungPhone 01978 351 501Email [email protected]

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Nationally we are one of the leading advisers to the rural and agriculture sector. With 24 offices across the UK, we are uniquely placed to give you the best advice because we understand both local needs and the national picture. For further information or to arrange a meeting to discuss your specific requirements, please contact one of our rural and agriculture specialists named inside or read more about us on our website at www.uhy-uk.com.

Rural and agriculture sector outlook - UHY Hacker Young · Rural and agriculture sector outlook ......

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